Leveraging Big Data in the Modern Tax Function
by Terri Eyden on
A June 2011 report by the McKinsey Global Institute reveals that there is a 40 percent projected growth in global data generated each year, and within the United States, fifteen out of seventeen industry sectors have more data stored per company than the US Library of Congress. Organizations that get ahead of this trend and implement policies and strategies to harness big data will enjoy a significant competitive advantage within the marketplace.
This will have particular importance for tax departments that have to contend with the aforementioned growing burden of compliance and reporting requirements and the equally important focus on quality and risk management. The organization, retention, and disposal of the vast collection of data available to companies, including data within the tax department, are key considerations to manage risk and avoid liability down the road. Without the ability to manage volume and extract the important, quality data from the growing quantity, tax will be further hindered by inefficiency and risk.
Furthermore, time spent on manual data manipulation and reporting limits opportunities for tax to focus on value-added tasks, such as strategic planning and forecasting. Historically, tax departments have tended to sit in a silo, apart from the organization as a whole. As the trend toward big data leads organizations to emphasize the value to be found in deep analyses of available information, this tendency can no longer continue.
The core benefit of harnessing big data is the opportunity to exploit the collective mass of data throughout an organization to find business trends, detect patterns, identify and address risks, and to boost productivity and market value. Tax must keep pace with the larger organization and seek opportunities to implement technology and process improvements. This will serve to both optimize day-to-day operations as well as provide opportunities to add value through planning, while enhancing the risk management profile of the tax function.
Tools of the Trade
According to a 2012 Forbes article, "big data is the new quant investing." Many of the ideas from quant investing make sense in this context; histories are huge and experimentation is easy. There is an underlying behavioral model, plus, you know your counter-parties. The large volume and variety of data allow use of new "data voracious" statistical and machine-learning methods that, in finance, are useful for high-frequency trading, but are worthless on daily or monthly market data. It is words as well as numbers, so natural language tools can work along with numerical calculation.
With such emphasis on data-driven decision making, organizations must make it a priority to effectively manage and utilize the wealth of data available to them in order to remain competitive, and tax departments are no exception to this reality. The capability to predict the potential tax impact of international transactions or proposed acquisitions through business intelligence solutions is just one example of the opportunities for tax to contribute to the success of the organization through the power of data. Data imaging technology offers the capability to better leverage paper notices by extracting meaningful information and transforming it into a readable electronic format that can be stored and later queried from a centralized database. There are multiple tools available to assist tax departments with these types of process improvements.